Epic Fail: How Blockbuster Could Have Owned Netflix

Blockbuster to Close all Stores
Justin Sullivan/Getty Images

Blockbuster chiefs lacked the vision to see how the industry was shifting under the video rental chain's feet

It will go down as one of the biggest missed opportunities in the boardroom: Blockbuster deciding not to buy Netflix.

But that’s what could have happened multiple times throughout the early 2000s when Netflix CEO and co-founder Reed Hastings courted a deal with Blockbuster-chief John Antioco to purchase the then DVD-by-mail rental company for $50 million (the company now has a market cap of $19.7 billion).

In 2005, Variety first reported that while Antioco was respected as a tough negotiator and strong manager, he lacked the vision to see where the homevideo industry was going and the changing shifts in the business under his feet.

“But management and vision are two separate things,” said a former high-ranking Blockbuster exec at the time, recalling, “We had the option to buy Netflix for $50 million and we didn’t do it. They were losing money. They came around a few times.”

SEE ALSO: Blockbusted! How Technology and Lack of Vision Took Down Blockbuster

Barry McCarthy, Netflix’s former chief financial officer, said in an interview with the Unofficial Stanford blog in 2008, “I remembered getting on a plane, I think sometime in 2000, with Reed [Hastings] and [Netflix co-founder] Marc Randolph and flying down to Dallas, Texas and meeting with John Antioco. Reed had the chutzpah to propose to them that we run their brand online and that they run [our] brand in the stores and they just about laughed us out of their office. At least initially, they thought we were a very small niche business. Gradually over time, as we grew our market, his thinking evolved but initially they ignored us and that was much to our advantage.”

Blockbuster would pursue other ventures. In 2000, it inked a 20-year-exclusive video-on-demand pact with Enron Broadband Services as the energy conglom launched into telecom. Blockbuster canned the pact after nine months after Enron was mired in scandal.

The company was also late to launch its own DVD-by-mail business and rental kiosks, but found it tough to compete against Netflix and Redbox.

In 2008, Blockbuster CEO Jim Keyes made a $1 billion-bid to buy Circuit City, but the electronics retailer closed its doors in 2009 after going bankrupt.

At the time, Wedbush Morgan Securities wrote in a research note that Blockbuster’s offer bordered “on being reckless,” and that Circuit City “appears to be in the middle of a death spiral.”

Blockbuster wound up filing for bankruptcy a year later, in 2010, when it lost $1.1 billion. The company at the time was valued at around $24 million, while Netflix’s worth rose to around $13 billion.

While Dish Network, the third-biggest U.S. pay TV operator, bought Blockbuster in 2011 for $320 million and has tried to keep its stores open, and brand relevant, the remaining 300 company operated outlets will now shutter by mid-January.

“Blockbuster was a poor strategy on our part,” Dish’s Charlie Ergen said during a call with Wall Street analysts Tuesday to discuss the company’s third quarter earnings results, noting that Blockbuster didn’t obtain streaming-video options the way competitors like Netflix or Redbox did.

It’s only fitting that whether it was a PR stunt or not, the final film rented from Blockbuster on Nov. 9 was “This Is the End.”

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  1. Quannabe says:

    EPIC FAIL: HOW BLOCKBUSTER COULD HAVE ALSO BANKRUPTED NETFLIX

  2. Quannabe says:

    I have fond memories of the day I cut my Blockbuster card in half and mailed it back to them after being threatened with collections for having $7 in late fees that were one week old. If Blockbuster had bought Netflix, Netflix also would have ceased to exist because Blockbuster couldn’t have helped turning it into the same, greedy piece of garbage as themselves. Good riddance, Blockbuster. I’m sorry I ever knew you and your self-absorbed, teenage employees.

  3. the destroyah says:

    By doing everyhting Netflix did before Netflix did it…..there, article summarized

    • Rachel says:

      Did you actually read the article? Blockbuster failed because it was constantly behind Netflix and couldn’t keep up (and because they treated their customers like shit).

  4. Technonick says:

    Blockbuster could have won out without Netflix. They needed to do three things:
    1) Align themselves with a food delivery service to have movies (and a pizza/soda/popcorn) delivered. Or possibly spin up a delivery service of their own.
    2) Put their entire catalog (per store) online to rent from and buy food.
    3) A mailer for each rented video to get sent back to the store.

    Blam, they would have a perfect model to stay in business. How often are you bored with what streaming movies aren’t available and don’t want to drive to the RedBox to see what they MIGHT have? Oh and you’re getting pizza because it’s Friday night? Why not order Blockbuster?

    No, they failed because they didn’t see the change coming, even when it was on their doorstep. Much like other posters have said, the Cable companies are in for the same treat. They’re going to be put out of business because of CLEC type resellers like Earthlink who resell cable/dsl internet services. I would bet a gold bar that the Earthlink’s next venture is streaming media channels. A cheap set top box connected to coax or dsl, with streaming options set up like channels but streamed from the Internet?

    It’s only a matter of time….

    • windlasher says:

      They also could have stopped pissing people off by charging us bazillions of dollars for a day or two late fees. I saw them charge a guy $62 for a week late movie. The same movie was on the shelf by the counter for $9.99 and they wouldn’t just let him buy it for $9.99. How many people never went back because of things like that?

    • You are dead on. Someone who shall remain nameless was more concerned about getting their fees to liquidate the company than develop a brand is responsible. The whole Pizza idea was suggested by many including turning the locations into pizza locations. No one listened. When the consultants are more worried about their fees than the success of the company this is the result.

      • Bob says:

        That exact same thing happened to me, so I just never went back. They lost a movie I had returned, but didn’t keep inventory of what movies were actually supposed to be in the store.

  5. KG says:

    Blockbusters’ biggest problem was that they treated their movies as their biggest asset, instead of their customers. Blockbuster was seen as a necessary evil by most of their customers, until Netflix came along. They tried to change near the end (online rentals and no late fees, kinda…), but it was too little, too late.

  6. JD says:

    Problem here is – those C level people could have gotten hired anywhere for multimillion dollar contracts before this just because “they were already C level managers somewhere important”. The fallacy to hire people with previous C level experience is one of the great downfalls of America. Case in point – these people were horrible managers (read: clueless) who deserved severe demotions at best. I see it all the time in the American workforce. It’s ruining our economy. They’re more politicians than managers. Apple was the exception.

    • A. Schmidt says:

      You are quite right. I’ve believed for years, based on my own experience, that the biggest problem we in America have with management is that we don’t have any.

  7. hans dieter ulrich says:

    Stupidity loves company. Hollywood Video turned down Netflix at 3mm subs because the CEO thought Netflix had fully saturated the market for film buffs. He then turned down buying Redbox because videos in a soda machine was just dumb. Stupid is as stupid does.

  8. independent_forever says:

    Wow! Reading about how things unfolded (many times too) truly shows a long trail of big mistakes and poor decisions. Interesting how hindsight is truly 20/20…sad to see these long-time stores and businesses go away because they couldn’t adapt..oh well….maybe it is for the best and consumers benefit from better options…time will tell…

    • A. Schmidt says:

      What you are referring to is called, I believe, “creative destruction” by the economists. It simply means that changes that arise in an industry, customer base, or technology, tends to wipe out some companies while creating more and better opportunities for new ones.

    • winston lawrence says:

      Not that I had any particularly bad experiences with Blockbuster but before Netflix came along, remember the BlockBuster late fee calculations – rewind penalties and other charges they would slap you with to rack-up fees? Netflix “got” their customers and grew very easily at Blockbuster’s at times arrogant expense. Im expecting there will be a similar eulogy for the cable companies who also have their own arrogant (and ignorant) customer relationship.

  9. Alex says:

    Unbelievable… what a stupidity, lack of vision… to me, renting at Blockbuster was like going to Disneyland for most people. Loved going in, TOUCHING the DVD’s, smelling pop corn, looking at magazines and posters… now, all virtual, but now I know it’s their fault. This SUCKS.

  10. Dave Andrews says:

    It doesn’t take much to change history. If Blockbuster had purchased Netflix, the president’s lack of vision would almost certainly have kept Netflix from becoming the blockbuster business (pun intended) that it is today.

  11. Jack says:

    The only thing that CEO’s care about is what goes in their hip pocket and nothing else! This is why america is were it is today, nothing will change until they will only get the same percentage raise the american public does but better yet lets start with the senators and congress. Think about it! What they think to be good for the american public they should be !st in line for it!

  12. JOE S HILL says:

    This is a tragedy! BLOCKBUSTER VIDEO could have survived,if not, became another business,,but
    the closing down of this National Video rental franchise is absolutely UNACCEPTABLE!! this is about
    as bad as watching BORDERS book store close down-all because these corporate people fumbled
    and gambled foolishly with these insane ideas-and LOST!! i hope the Fallout from this shutdown will
    seriously hurt Dish TV,and its extremely STUPID decisions!

    • A. Schmidt says:

      It’s true that CEO’s should increase a company’s profits and, as they like to say, “enhance shareholder value”. However, there is a pervasive belief in American industry that getting a really good CEO is indispensable to achieving those aims. That’s why company directors are always too anxious to fall all over themselves to give a new CEO whatever he(or she) wants in a contract. Some of these things include yearly bonuses for achieving an agreed-upon set of goals, regardless of whether the company makes any money, and a golden parachute to use when the board fires him or her. This kind of, what I consider malfeasance on the part of boards of directors, is the reason that very few CEOs, most of whom will, in the end, show themselves to be incapable of doing their jobs, don’t much care how the company does. They get their money in any event. Then, with a bagful of excuses as to why the previous company didn’t do so well under their leadership, they go on to convince some other board that they should be hired as that company’s CEO, since they have all that experience running a large company. My suggestion for many companies is to try getting rid of their CEO and not replacing him or her. See how the company does for 6 months or a year. If it starts to fall apart, then get a new CEO; the company is obviously run by idiots and needs a strong hand to control them. On the other hand, I’m betting that the majority of companies will find that they haven’t even noticed that the CEO is gone.

  13. Chris says:

    Wow! Could you imagine what would have happened if Blockbuster did purchase Netflix?! Antioco would have run it right into the fucking ground!! But we’d still be renting “due by noon the next day” videos.

  14. rangoon says:

    The only thing more irritating than a Monday morning quarterback is tieing everything together with that steaming POS movie This Is The End.

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